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New Mexico gets $2 for every dollar in taxes, New Jersey only 55 cents

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WASHINGTON, D.C.—Federal tax and spending splits the nation between “donor states” and “beneficiary states,” according to the Tax Foundation’s annual analysis of federal taxing and spending patterns. (Click here to read the full study.)

In Fiscal Year 2004, the most recent year for this data, New Mexico was the biggest beneficiary, getting $2 back in spending for every tax dollar. New Jersey taxpayers were the most generous, sending $1 to Washington for just 55 cents in spending.

“The main culprit is not lazy congressmen who don’t bring home enough pork, but rather the progressive income tax,” said Tax Foundation President Scott Hodge.

High-income people who pay income tax at the highest rates -- currently 25%, 28%, 33% and 35% -- are far more numerous in the donor states. But in states where average earnings are lower, a greater percentage of tax is paid at the 10% and 15% rates.

How much would Congress have to spend in New Jersey before it got New Mexico’s sweet deal -- $2 back for every $1 it paid in federal taxes? “The answer is an impossible amount,” said Hodge, “more than a third of what the nation spends on military defense. The only hope for rapid improvement in New Jersey’s ratio would be a fundamental tax reform that flattened federal income tax rates.”

States That Benefit
During fiscal 2004, taxpayers in New Mexico benefited the most from the give-and-take with Uncle Sam, receiving $2.00 in federal outlays for every $1.00 the state’s taxpayers sent to Washington. Other states whose modest tax payments produced favorable spending-to-tax ratios were Alaska ($1.87), West Virginia ($1.83) and Mississippi ($1.77).

States That Help Others
If some states are beneficiaries, then naturally some must be benefactors.

Combining the second highest tax burden per capita with the fourth lowest federal spending per capita, New Jersey had the lowest federal spending-to-tax ratio (55¢). Other states that had low federal spending-to-tax ratios in FY 2004 are Connecticut (66¢), New Hampshire (67¢), Minnesota (69¢) and Illinois (73¢).

Changing Ranks
The state that raised its ratio the most between 1994 and 2004 is Alaska where federal spending rose from $1.30 to $1.87 for each dollar in taxes. This 57-cent increase beats out Alabama, where federal spending increased 36¢ per dollar of tax, West Virginia (34¢ more spending per dollar), and Hawaii (31¢ more).

States where the ratio dropped most are Colorado, Massachusetts and California. Colorado’s ratio fell 21¢ from $1.00 in FY 1994 to 80¢ in FY 2004. Massachusetts’s has dropped 20, and California’s 19¢.

RedState,BlueState?
The correlation between donor states and so-called blue states is fairly strong: 13 of the 19 states that Senator Kerry won in 2004 sent more to Washington in taxes than they got back in spending.

Meanwhile, most of the so-called red states profit from federal taxing and spending: 25 of the 31 states President Bush won. “They pay their taxes too,” said Tax Foundation President Scott Hodge, “but those payments are not as high because of the progressive income tax.”

The study is No. 139 in the Tax Foundation Special Report series, titled “Federal Tax Burdens and Expenditures by State,” by Foundation economist Curtis Dubay. Using new Fiscal Year 2004 spending data from the Census Bureau’s annual Consolidated Federal Funds Report, Dubay has compared the federal tax burden in each state with the amount of federal spending in each state. The result is a ranking of which states got the best deal in 2004 from Uncle Sam’s tax and spending policies.

Best known for its annual calculation of Tax Freedom Day ®, the Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937

Table 1. Adjusted Ratios of Federal Expenditures to Taxes* by State with Ranking

Fiscal Years 1994 and 2004

State

Spending Per Dollar of Tax

Change in Spending Per Dollar of Tax

Ranking

Change

in State

Rank

FY 1994

FY 2004

FY 1994

FY 2004

Alabama

$ 1.34

$ 1.71

$ 0.36

10

6

-4

Alaska

$ 1.30

$ 1.87

$ 0.57

12

2

-10

Arizona

$ 1.11

$ 1.30

$ 0.19

20

19

-1

Arkansas

$ 1.24

$ 1.47

$ 0.23

16

12

-4

California

$ 0.98

$ 0.79

-$ 0.19

32

43

11

Colorado

$ 1.00

$ 0.79

-$ 0.21

30

41

11

Connecticut

$ 0.67

$ 0.66

$ 0.00

50

49

-1

Delaware

$ 0.79

$ 0.79

$ 0.00

43

40

-3

Florida

$ 1.06

$ 1.02

-$ 0.03

27

30

3

Georgia

$ 0.99

$ 0.96

-$ 0.03

31

35

4

Hawaii

$ 1.29

$ 1.60

$ 0.31

13

8

-5

Idaho

$ 1.12

$ 1.28

$ 0.16

19

21

2

Illinois

$ 0.74

$ 0.73

-$ 0.01

46

46

0

Indiana

$ 0.82

$ 0.97

$ 0.15

41

33

-8

Iowa

$ 1.10

$ 1.11

$ 0.02

22

25

3

Kansas

$ 1.07

$ 1.12

$ 0.06

24

23

-1

Kentucky

$ 1.20

$ 1.45

$ 0.25

18

14

-4

Louisiana

$ 1.35

$ 1.45

$ 0.11

8

13

5

Maine

$ 1.35

$ 1.40

$ 0.04

7

16

9

Maryland

$ 1.27

$ 1.44

$ 0.17

15

15

0

Massachusetts

$ 0.97

$ 0.77

-$ 0.20

33

44

11

Michigan

$ 0.79

$ 0.85

$ 0.06

45

38

-7

Minnesota

$ 0.79

$ 0.69

-$ 0.10

44

47

3

Mississippi

$ 1.61

$ 1.77

$ 0.16

2

4

2

Missouri

$ 1.34

$ 1.29

-$ 0.05

9

20

11

Montana

$ 1.43

$ 1.58

$ 0.15

5

9

4

Nebraska

$ 1.06

$ 1.07

$ 0.01

26

28

2

Nevada

$ 0.71

$ 0.73

$ 0.02

48

45

-3

New Hampshire

$ 0.73

$ 0.67

-$ 0.07

47

48

1

New Jersey

$ 0.69

$ 0.55

-$ 0.13

49

50

1

New Mexico

$ 1.88

$ 2.00

$ 0.12

1

1

0

New York

$ 0.85

$ 0.79

-$ 0.06

40

42

2

North Carolina

$ 0.93

$ 1.10

$ 0.16

39

27

-12

North Dakota

$ 1.54

$ 1.73

$ 0.18

3

5

2

Ohio

$ 0.94

$ 1.01

$ 0.07

38

32

-6

Oklahoma

$ 1.28

$ 1.48

$ 0.20

14

11

-3

Oregon

$ 0.95

$ 0.97

$ 0.02

35

34

-1

Pennsylvania

$ 1.01

$ 1.06

$ 0.06

29

29

0

Rhode Island

$ 1.11

$ 1.02

-$ 0.09

21

31

10

South Carolina

$ 1.23

$ 1.38

$ 0.15

17

17

0

South Dakota

$ 1.31

$ 1.49

$ 0.18

11

10

-1

Tennessee

$ 1.08

$ 1.30

$ 0.23

23

18

-5

Texas

$ 0.94

$ 0.94

$ 0.00

37

36

-1

Utah

$ 1.06

$ 1.14

$ 0.08

25

22

-3

Vermont

$ 0.95

$ 1.12

$ 0.17

34

24

-10

Virginia

$ 1.40

$ 1.66

$ 0.26

6

7

1

Washington

$ 0.94

$ 0.88

-$ 0.06

36

37

1

West Virginia

$ 1.49

$ 1.83

$ 0.34

4

3

-1

Wisconsin

$ 0.82

$ 0.82

$ 0.00

42

39

-3

Wyoming

$ 1.03

$ 1.11

$ 0.07

28

26

-2

Dist. of Columbia

$ 5.39

$ 6.64

$ 1.25

-

-

-

Source: Census Bureau, Tax Foundation

* Deficits are considered future tax liabilities moved to the current year.

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